Pig iron price slump forces Kudremukh to suspend sales

Bangalore, Jan 25 (IANS) Hit by a record slump in prices of pellets and pig iron since September, the state-run Kudremukh Iron and Ore Co has suspended production and sales, a top company official has said.”We have suspended production and sale of our products this quarter (January-March) of fiscal 2009, as the prevailing prices of pellets overseas and pig iron in the domestic market are unviable even for spot contracts,” Kudremukh chairman and managing director K. Ranganath told IANS here.

China’s demand for iron and steel declined sharply after the Beijing Olympics last August, while the global meltdown has had a cascading effect on international metal prices. In the case of iron oxide pellets, the rate plunged from a record high of $245 per tonne in the first week last September to $54 per tonne in the fourth week.

“Since October, pellet price has been hovering between $55 to $90 per tonne. With our production cost at $74-80 per tonne, it is not viable for us to export,” Ranganath said.

“We will wait for the pellet price to touch $105 per tonne to secure spot contracts. Till then we do not want to incur further expenditure and pile up inventory. We hope the economy will rebound in the next six months,” he said.

Similarly, pig iron price has declined to Rs.20,000 from Rs.35,000 per tonne during the third quarter (October-December) in line with international scenario and lower offtake in the domestic market.

As a 100 percent export-oriented unit (EoU), Kudremukh exports high quality iron oxide pellets to Southeast Asia, Middle East, Africa and Far East markets like Japan and South Korea. The pig iron is sold in the domestic market.

As per the foreign trade policy, the EoU company is allowed to sell in the local market equivalent to 50 percent of pellets exported in the previous fiscal.

“The absence of captive mines has increased our production cost as the raw material has to be transported from Bellary (in north Karnataka) to our pelletisation plant at Mangalore (on the west coast),” Ranganath said.

The 32-year-old company’s captive mines at Kudremukh have been shut since Jan 1, 2006, following a Supreme Court order.

For the first time in many years, the profit-making firm posted a net loss of Rs.797.6 million (Rs. 79.76 crore) for the third quarter this fiscal, as against a profit of Rs.200.5 million (Rs.20.05 crore) in the same quarter last fiscal.

Net sales and income from operations plunged 70 percent to Rs.958.5 million (Rs.95.85 crore) in the quarter under review from Rs.3.22 billion (Rs.322 crore) in the year-ago period.

Similarly, operating income declined to Rs.6.5 million (Rs.65 lakh) from Rs.80 million (Rs.8 crore) a year ago.

Though the company posted a net profit of Rs.1.44 billion (Rs.144 crore) for the first six months this fiscal, it is expected to decline steeply to Rs.150 million (Rs.15 crore) for the entire fiscal, as against Rs.1.08 billion (Rs.108 crore) the previous year.

“As we have stopped securing contracts and suspended sales for the fourth quarter, we will not generate any profit. After meeting our operational expenses, including salaries, net profit for the fiscal will be around Rs.150 million (Rs.15 crore),” Ranganath affirmed.

In spite of net loss in the third quarter, the company posted Rs.157.6 million (Rs.15.76 crore) profit for the first nine months this fiscal, as against Rs.376.3 million (Rs.37.63 crore) in the corresponding period of last fiscal.